Excerpt:direct taxation - nature of land - section 2 of wealth tax act, 1957, code of civil procedure, 1908 and article 252 (1) of constitution of india - assessee claimed his land as agricultural land and sought exclusion of such land from net wealth - land had been assessed to land revenue as 'agricultural land' under section 50 of hyderabad land revenue act - held, land capable of agriculture falls within definition of agricultural land and not to included in net wealth.
- - in deciding this question it is well to remember that the genesis of the power to enact the wealth tax act which authorities levy of a tax on the capital value of certain assets, is traceable to entry 86 of list i of seventh schedule to the constitution. it is a well-established proposition that the words occurring in.....ramachandra rao, j.1. this case is referred under section 27(1) of the wealth tax act of 1957, for a decision of this court on the question.'whether on the first and in the circumstances of the case, the lands situated at begumpet, lallaguda, jiaguda, subzimandi, yerragadda, zamboorkhana and vicarabad, were agricultural lands within the meaning of section 2(e) (i) of the wealth tax act, (hereinafter referred to as the act).'when this case came up before a bench of this court consisting of one of us (the hon'ble the chief justice) and sambasiva rao, j., they referred the same to a full bench as an important question as to the meaning of the word 'agricultural lands' falls for determination, and as there is an apparent conflict between the decision rendered by a bench of the madras high.....

Judgment:

Ramachandra Rao, J.

1. This case is referred under Section 27(1) of the Wealth Tax Act of 1957, for a decision of this Court on the question.

'Whether on the first and in the circumstances of the case, the lands situated at Begumpet, Lallaguda, Jiaguda, Subzimandi, Yerragadda, Zamboorkhana and Vicarabad, were agricultural lands within the meaning of Section 2(e) (i) of the Wealth Tax Act, (hereinafter referred to as the Act).'

When this case came up before a Bench of this Court consisting of one of us (The Hon'ble the Chief Justice) and Sambasiva Rao, J., they referred the same to a Full Bench as an important question as to the meaning of the word 'agricultural lands' falls for determination, and as there is an apparent conflict between the decision rendered by a Bench of the Madras High Court in Sarojini Devi v. Sri Krishna, AIR 1944 Mad 401 and a decision of another Bench of this Court in Smt. Manyam Meenakshamma v. Commr. of Wealth-tax, : [1967]63ITR534(AP) .

2. The brief facts as found in the statement of the case are as follows; By a notification dated 4th August, 1960, the Court of Wards of the erstwhile Hyderabad State Government took over the administration of the estate of late Sri Vicar-ul-Umra, and an officer in charge was appointed to administer the said paigah. The paigah owned various assets, such as buildings, vacant lands etc., the total value of the immovable property was determined at Rs. 30,18,569. An amount of Rs. 17,77,973 representing the value of the vacant land situated at Begumpet, Lalaguda, Jiaguda, Subzimandi, Yerragadda, Zamboorkhana and Vicarbad, was included in the said total value. The assessee claimed that these lands were agricultural lands and that their value was not included in the net wealth as they are excluded from the assets under the provisions of Section 2(e)(i) of the Act. The main item was the land situated at Begumpet which was valued at Rs. 15,69,052. It was agreed by both parties before the Income-tax appellate Tribunal that the facts relating to this land and the conclusion arrived at in respect of them, would equally apply to the other lands mentioned above. There was also no dispute with regard to the actual valuation adopted in respect of the several items. The property at Begumpet was known as 'Begumpet place, Hyderabad'. The buildings in this property were valued at Rupees 8, 81, 336 while the vacant land comprising an area of about 108 acres was valued at Rs. 15,69,052. The entire plot of land was enclosed in a compound wall and the various buildings inside it, had their own compound walls. The land had never been actually used for agriculture, in the sense, that it had never been ploughed or tilled. The property is situated adjacent to the tank known as 'Hussain Sagar' on the southern side, and there are two wells in the said land. The land was capable of being used for agriculture and land revenue was being assessed and paid in respect of the said lands. A Government of Hyderabad on 15th September, 1955 and utilised by them for construction of building thereon.

3. On these facts, the Wealth Tax Officer, came to the conclusion that the lands could not be treated as 'agricultural lands' as no agricultural operations were carried on, in the sense of ploughing and tilling the land and raising any crop thereon. The appellate Assistant Commissioner, confirmed the order of the Wealth Tax Officer on this point. The Assessee preferred an appeal to the Income Tax Appellate Tribunal. The Tribunal also took the view that the said land was never intended to the used for agriculture and that the lands were never ploughed or tilled and that the lands were situated within the limits of the Hyderabad Municipal Corporation and that the presumption would be that they were not agricultural lands and that the said presumption was not rebutted, as no agricultural operations were ever carried on the said land. In this view, the Tribunal confirmed the order of the Appellate Assistant Commissioner on this point.

4. Sri D. Narasa Raju, the learned counsel for the assessee after referring to the several items in the Legislative Lists of the Government of India Act of 1935 and the Constitution of India, contends that the expression 'agricultural land' in Item 86 of List I of the Seventh Schedule of the Constitution is used in its widest amplitude, that agriculture and agricultural land fall within the exclusive field of the legislative power of the State and that the expression 'agricultural land' in Sec. 2(e) (i) of the Act similarly should receive widest construction. He submits that the expressions used in the Heads of Legislation should be given a large and liberal interpretation, as held by their Lordships of the Privy Council in Megh Raj v. Allah Rakhia, AIR 1947 PC 72 and by their Lordships of the Supreme Court in Sri Ram Ram Narain v. State of Bombay, : AIR1959SC459 . If the expression 'agricultural land' is given a wide and liberal meaning, the learned counsel contends that the lands which are not actually cultivated, in the sense of having been ploughed or tilled but which are capable of being cultivated, also fall within the description of 'agricultural lands' and they should be executed from the computation of the net value of the assessee. In support of his contention, the learned counsel relies upon two decisions, one of a Bench of the Madras High Court in AIR 1944 Mad 401 and another of the Calcutta High Court in Nil Govinda Misra v. Rukmini Deby : AIR1944Cal421 . The learned counsel further submits that the view taken by a Bench of this Court in : [1967]63ITR534(AP) was not correct.

5. Sri T. Ananta Babu, the learned counsel for the Income-tax Department, contends that the expression 'agricultural land' used in Section 2(e)(i) of the Act should not be given a wide or liberal meaning as contended for by the appellant, that in determining whether a particular land is agricultural land or not, the nature or character of the land during the relevant accounting year is the criterion that the time factor is relevant in determining the eligibility to tax, that the circumstances prevailing during the relevant accounting year should alone be taken into consideration and that mere potentiality of the land or its capacity for being used for agriculture is not the deciding factor, that the expression 'agricultural land' is intended to cover only the lands with respect to which some agricultural operations had been carried on either during the accounting year or at least in the immediate past, and that in the instant case, the lands having not been ploughed or tilled at any point of time, they would not fall within the category of 'agricultural lands'.

6. Sri Anwarulla Pasha, in reply submitted that the lands have been actually classified as agricultural lands, that the land-owners have not done any act to convert the lands into non-agricultural lands and, therefore, the land in question retains the character as agricultural land.

7. The Wealth Tax Act has been enacted by the Parliament in exercise of the power conferred by Entry 86 of List I of the Seventh Schedule of the Constitution. The said Entry is in the following terms:-

'Taxes on the capital value of the assets, exclusive of agricultural lands, of individuals and companies taxes on the capital value of companies.'

Under Section 3 of the said Act, Wealth tax is leviable on the net wealth of every individual, Hindu undivided family and company at the rate or rates specified in the schedule. In computing the net wealth of an individual not only the assets belonging to him but also certain other assets mentioned in Section 4 of the Act, have to be included as belonging to him. The word 'assets' has been defined in Sec. 2 (e) of the Act. In the definition of the said expression, certain properties have been excluded. We are concerned here only with the provisions of Sec. 2(e)(i) of the Act which exclude agricultural land from the said definition. The said provision reads as follows:-

'Section 2(e). - `Assets' includes properly of every description, movable or immovable, but does not include (I) agricultural land and growing crops, grass or standing trees on such land;'

The other portion of the said section are not relevant for the purpose of this case. Before we consider the interpretation of the word 'agricultural land' it is necessary to decide the question whether the said words occurring in Section 2(e)(i) of the Act should be given a liberal and widest meaning as contended for by Sri D. Narsa Raju, or it should bear only a restricted meaning as urged by Sri T. Ananta Babu. In deciding this question it is well to remember that the genesis of the power to enact the Wealth Tax Act which authorities levy of a tax on the capital value of certain assets, is traceable to Entry 86 of List I of Seventh Schedule to the Constitution. The said entry expressly refers to agricultural land and excludes it in the computation of the capital value of the assets. As under the aforesaid Entry, there is no power in Parliament to make a law to include agricultural land in the assets for purposes of levying tax on capital value, Parliament had taken care to provide that agricultural land exempted under Entry 86 of List I should also be excluded from the assets whose capital value is chargeable to wealth tax under the Act. To achieve this object the word 'assets' has been so defined in the Act as to exclude agricultural lands. The inference is, therefore, irresistible that Parliament intended that the words 'agricultural land' employed in S. 2(e)(i) of the Act should bear the same meaning as it bear in Entry 86 of List I of the Seventh Schedule to the Constitution. It is a well-established proposition that the words occurring in a head of Legislation should be interpreted liberally and given the widest meaning. If, therefore, follows that the words 'agricultural land' in Section 2(e)(i) of the Act should bear a liberal construction, and given the widest meaning.

8. Bearing in mind the aforesaid principle of construction, we have to next determine the content and meaning of the expression 'agricultural land'. The said expression has not been defined either in the Constitution or in the Act. We can, therefore, have recourse only to the ordinary meaning of the word 'agricultural land'. A reference to the dictionaries may perhaps assist us in this context. In Murray's Oxford Dictionary, it is stated that the word 'agricultural' means -

'of or pertaining to agriculture' or 'connected with husbandry or tillage of the ground' and the meaning of the word 'agriculture' is given as:

'the science and art of cultivating the soil including the allied pursuits of gathering in the crops and rearing livestock or tillage, husbandry and farming in the widest sense.' In Wharton's law Lexicon, 'agricultural land' is described as 'any land used as arable, meadow or pasture ground only cottage gardens exceeding one quarter of an acre, market gardens, nursery grounds, orchards or allotments, but does not include land occupied together with a house as a park, gardens other than as aforesaid, pleasure-grounds, or any land kept or preserved mainly or exclusively for purpose of sport or recreation or land used as a race course'. But we find that this meaning has been given on the basis of Section 9 of the Agricultural Rates Act, 1896, and hence it is not relevant or useful. According to the Chambers' Twentieth Century Dictionary, the word 'agriculture' means the are or practice of cultivating the land. In Webster's Dictionary, 'agriculture' is given the meaning of 'the science or art of cultivating a soil, harvesting crops and raising live-stock', also as ' the science or art of production of plants and animals useful to man and in varying degrees the preparation of these products for man's use and their disposal (as by marketing). According to the same dictionary, the word 'agricultural' means of relating to or use in agriculture'. But these meanings by themselves do not sufficiently indicate the meaning to be given to the expression 'agricultural land'.

In our opinion the adjective 'agricultural' is only descriptive of the character of the land. It cannot be ascribed the same meaning as the noun 'agriculture' in the context in which it occurs. Words like 'agriculture', or 'agricultural' are used in different senses and bear different meanings according to the context in which they occur and they cannot be construed as having been used only in the one sense of actual tilling or ploughing. If such a construction is to be placed on the word 'agricultural' it will be giving a restricted meaning to the expression 'agricultural land' and not the widest meaning. Ultimately, therefore, 'agriculture land' has to be understood and interpreted according to ordinary notions of common sense and in the sense in which it is understood in ordinary parlance. If so understood, we are of the opinion that 'agricultural land' is an open land which is either cultivated or which is fit for cultivation. It is the inherent quality of the land that has to be taken into consideration in determining whether it has the characteristic of the land 'is not defendant upon the nature of the produce cultivated thereon'. If a land is fit for carrying on agriculture, in the sense of being tilled and ploughed without any further necessity for undertaking extensive or expensive measures for converting the basic characteristic of the land and marking it fit for cultivation in the above sense, it can be termed as 'agricultural land'.

In this sense, every land which is presently or prospectively capable of cultivation, can be said to be 'agricultural land'. If it is shown that the land is actually cultivated either presently or in the immediate past or if it is shown that it is lying fallow, but is capable of being cultivated, so long as the land has not been actually diverted to purposes other than agricultural purposes by construction of building thereon and other operations which render the land itself incapable of being cultivated without undertaking some other operations for marketing it for carrying on agricultural operations, it can be said to answer the description of agricultural land in its widest significance. It is equally true that the Central Legislature under the Government of India Act had, and the Parliament under Entry 86 of List I of Schedule VII to the Constitution, has no legislative competence in respect of agricultural land unless of course under Article 252(1) two or more States by a resolution confer that power. In these circumstances, in construing the meaning of the expression 'agricultural land' which occurs in the Legislative Lists, a liberal construction must be placed on it and if the meaning accorded to the expression in the State list is widened on such a construction that meaning must equally be given to the expression used in List I from which it is excluded. We cannot accept the contention of Sri Anantha Babu that we must place a narrow interpretation while construing that expression for the purpose of a Central enactment. In this is done, there will be a conflict between the two powers which will have to be resolved in favour of the State on which an exclusive power in respect of that subject has been conferred.

It is well to remember in this context that sovereigns have, in exercise of their prerogative, claimed a share of the produce of the lands and fixed that share or its commuted money value from time to time. It is unnecessary to refer to the several systems of land tenures which were prevalent in India. Suffice it to mention that all arable lands are classified according to the nature of the soil and the assessment was fixed according to the quality and extent of the land. Under the ryotwari system, land revenue was fixed on the basis of 'taram' in the Andhra area and 'bhaganna' or 'annawari' principle in the Telangana area of the State of Andhra Pradesh. The principles of classification based on 'taram' are contained in the Board's Standing Orders, whereas in the Telangana area, the name was under the Hyderabad Land Revenue Act (8 of 1317 Fasli). We may also refer in this connection to a recent enactment of the State of Andhra Pradesh, viz., the Andhra Pradesh Land Revenue Enhancement Act (No. 8 of 1967) which declared the Government's right to levy and collect land revenue and also to provide for the levy of additional land revenue on certain lands in the State of Andhra Pradesh. The Act provides for classification of the lands and fixation of the assessment payable in respect of each category of land. If, therefore, a land is classified under the State Revenue law in force as 'agricultural land' and land revenue is collected therefrom it is prima facie strong evidence of the character of the land as 'agricultural land'.

9. The mere fact that a land is situate in a village or in a town or in a city is not conclusive of its character. It is well known that even in major cities and towns, large tracts of land are actually under cultivation, and unless they are shown to have been actually converted or put to some other use which alters its basic character and renders it unfit for agriculture, it cannot be said that they cease to be agricultural lands. Therefore, in determining whether the lands in question are agricultural lands or not, the aforesaid principles or tests have to be borne in mind.

10. The question may now be examined with reference to decided cases on the point, which are not many. Cases which dealt with expression like 'agriculture', 'agricultural purpose' or 'agricultural income' as defined in various statutes, English or Indian, are not relevant or useful in determining the connotation of the expression 'agricultural land'.

11. In Megh Raj v. Allah Rakhia, AIR 1942 FC 27, their Lordships of the Federal Court noticed the difficulty in determining the precise scope and meaning of the expression 'agricultural land' and left the question open, with the following observations:-

'In this state of the authorities, it seems to us best to refrain from deciding the precise scope of the expression 'agricultural land' or the propriety of excluding 'land on which a grove has been planted' from the category of agricultural land. It may on a proper occasion the necessary to consider whether for the purpose of the relevant entries in Lists 2 and 3, Constitution Act, it will not be right to take into account the general character of the land (as agricultural land) and not the use of which it may be put at a particular point of time. It is difficult to impute to Parliament the intention that a piece of land should, so long as it is used to produce certain things be governed by and descend according to laws framed under List 2, but that when the same parcel of land is used to produce something else (as often happens in this country), it should be governed by and descened according to laws framed under List 3'.

12. The next case in which the question directly arose in AIR 1944 Mad 401. The question that arose for consideration there was whether a mango grove was agricultural land within the meaning of Entry 21 of List II and No. 7 of List III of the Seventh Schedule to the Government of India Act, 1935. There the widow of a coparcener who died undivided from his sons sued for partition and recovery of a share in the family properties, on the basis of the provisions of the Hindu Women's Right to Property Act, 1937, though the claim was initially made in respect of all properties it was conceded that she was not properties it was conceded that she was not entitled to a share in agricultural lands forming part of the estate, in view of the decision of the Federal Court in re, Hindu Women's Rights to Property Act. that the said Act did not operate to regulate succession to agricultural land in the Governor's provinces. But one of the items was a mango grove in which the widow claimed a share on the ground that it was not agricultural land. Their Lordships held that the expression 'agricultural land' included not only lands which were used but were capable of being used for raising any valuable plants or trees or for any other purpose of husbandry. Patanjali Sastri, J., as he then was, delivering the judgment of the Court, observed as follows at p. 402:-

'As we have already pointed out, the term 'agricultural' is used in different senses and in order to ascertain in what sense it is used in the Legislature Lists in Sch. VII, Constitution Act, we must have regard to the object and purpose of S. 100 of which these Lists really form part. That section deals with the distribution of legislative deals with the distribution of legislative powers as between the Federal and Provincial Legislatures, and the Lists enumerate the 'matters' in respect of which those Legislatures have or have not power to make laws. In such context it seems to us that the expression 'agricultural land' must receive the widest meaning for it would be somewhat grotesque to suppose that Parliament intended that lands devoted to the production of one kind of crop should devolve according to laws passed by Provincial Legislatures, while those used for growing another kind should pass according to laws made by the Central Legislature, or that 'the circumstances in which the cultivation is carried on' (per Reilly J. in ILR 54 Mad 900 : AIR 1981 Mad 659 should determine the law which governs the devolution of the land. Nor could it have been intended that succession to such lands should depend on the degree of tillage or preparation of the soil or the skill and labour expended in rearing and maintaining the plants. We are of opinion that, for the purpose of the relevant entries in Lists II and III of Schedule VII, the expression 'agricultural lands' must be taken to in 'agricultural lands' must be taken be include lands which are used or are capable of being used for raising any valuable plants or trees or for any other purpose of husbandry. It follows that the mango grove in question is agricultural land in respect of which the Hindu Women's Rights to Property Act, 1937, does not operate to regulate succession. This pronouncement is a clear authority for the proposition that not only the actual user of the land but also its capacity for being used for agricultural purposes should be taken into consideration for determining whether a particular land falls within the expression 'agricultural lands.'

14. Sri T. Ananta Babu contends that the view taken in the aforesaid decisions that 'agricultural land' includes also land which is not actually used but is capable of being used for agriculture is no longer correct in view of the decision of the Supreme Court in Commr. of Income-tax v. Raja Benoy Kumar Sahas Roy, : [1957]32ITR466(SC) , as held by a Bench of this Court in : [1967]63ITR534(AP) . In the case decided by the Supreme Court mentioned above, the main question that arose for consideration was whether the income derived by the respondent therein from sales of trees from his forest which was of spontaneous growth and not grown by the aid of human skill and labour, was 'agricultural income' and as such exempt from payment of tax under Section 4 (3) (viii) of the Indian Income-tax Act and it was held that it was not 'agricultural income'. It is pertinent to note that in this case, the connotation of the expression 'agricultural land' did not fall for consideration. In that case their Lordships were mainly concerned with the expression 'agricultural income' as defined in Art. 366(1) of the Constitution and in Section 2(1) of the Indian Income-tax Act, XI of 1922. In determining what was 'agricultural income', their Lordships had to consider the meanings of the expressions 'agriculture' and 'agricultural purpose'.

15. In the context, Bhagwati J., who spoke for the Court made the following observations at pp. 508 and 509 (of ITR) = (at p. 788 of AIR).

'We have, therefore, to consider when it can be said that the land is used for agricultural purpose or agricultural operations are performed on it. Agriculture is the basic idea underlying the expression 'agricultural purposes' and 'agricultural operations' and it is pertinent, therefore to enquire what is the connotation of the term 'agriculture'. As we have noted above, the primary sense in which the term 'agriculture' is understood is agar-field and cultra cultivation, i.e., the cultivation of the field, and if the term is understood only that sense, agriculture would be restricted only to cultivation of the land in the strict sense of the term meaning thereby tilling of the land, sowing of the seeds, planting and similar operations on the land. They would be the basis operations and would require the expenditure of human skill and labour upon the land itself. There are, however, other operations which have got to be resorted to by the agriculturist and which are absolutely necessary for the purpose of effectively raising the produce from the land.

We are of opinion that the mere performance of these subsequent operations on the products of the land, where such products have not been raised on the land by the performance of the basic operations which we have described above would not be enough to characterise them as agricultural operations. In order to invest them with the character of agricultural operations, these subsequent operations must necessarily be in conjunction with and a continuation of the basic operations which are the effective cause of the products being raised from the land. It is only if the products are raised from the land by the performance of these basic operations that the subsequent operations attach themselves to the products of the land and acquire the characteristic of agricultural operations. The cultivation of the land does not the comprise merely of raising the products of the land in the narrower sense of the term like tilling of the land, sowing of the seeds, planting, and similar work done on the land but also includes the subsequent operations set out above all of which operations, basic as well as subsequent, from one integrated activity of the agriculturist and the term 'agriculture' has got to be understood as connoting this integrated activity of the agriculturist. One cannot dissociate the basic operations from the subsequent operations and say that the subsequent operations even though they are divorced from the basic operations, can constitute agricultural operations by themselves. If this integrated activity which constitutes agriculture is undertaken and performed in regard to any land, that land can be said to have been used for 'agricultural purpose' and the income derived therefrom can be said to be 'agricultural income' derived from the land by agriculture.

Again at pp. 510 and 511 (of ITR) = (at p. 789 of AIR), the following observations were made:-

'If the term 'agriculture' is thus understood as comprising within its scope the basic as well as subsequent operations in the process of agriculture and the raising on the land of products which have some utility either for consumption or for trade and commerce, it will be seen that the term 'agriculture' receives a wider interpretation both in regard to its operations as well as the results of the same. Nevertheless there is present all throughout the basic idea, that there must be at the bottom of it cultivation of land in the sense of tilling of the land, sowing of the seeds, planting, and similar work done on the land itself. This basic conception is the essential sine qua non of any operation performed on the land constituting agricultural operation. If the basic operations are there, the rest of the operations found themselves upon the same. But if these basic operations are wanting the subsequent operations do not acquire the characteristic of agricultural operations.' But these observations were made only for the purpose of determining the main question whether the income derived from forest growth could be said to be 'agricultural income', and the question as to what constitutes 'agricultural land' did not arise for consideration, and the scope and meaning of the expression 'agricultural land' was therefore not considered in the said decision. The decisions, AIR 1942 FC 27 and AIR 1944 Mad 401, were cited before their Lordships of the Supreme Court as authority for the proposition that the expression 'agricultural land' in Entry 21 of List II of Seventh Schedule to the Government of India Act, 1935, should be interpreted in India Act, 1935, should be interpreted in its wider sense as including lands which are used or are capable of being used for agriculture. His Lordship Bhagwati, J., while recognising the force of the opinions expressed therein, observed at p. 476 (of ITR) = (at p. 773 of AIR) that the expressions of opinion in the said cases were not relevant for the purpose of determining the meaning of 'agricultural income' which is expressly defined in Article 366(1) of the Constitution. This decision, therefore, cannot lend any support to the contention advanced by the learned counsel for the Revenue.

16. Sri T. Ananta Babu relies upon the decision of this Court in : [1967]63ITR534(AP) where Krishna Rao and Sharfuddin Ahmed, JJ., held that the view taken in AIR 1942 FC 27 and AIR 1944 Mad 401 could not be supported in view of the pronouncement of the Supreme Court in : [1957]32ITR466(SC) . The said case, : [1967]63ITR534(AP) arose out of a reference under Sec. 27 (1) of the Wealth Tax Act. The assessee Smt. M. Meenakshamma was assessed to wealth tax. Her properties included forest and agricultural land and buildings situated at various places. The Wealth Tax Officer determined the value of the forest at rupees two lakhs and included the same in the total wealth of the assessee. The assessee filed an appeal before the Appellate Assistant Commissioner on various grounds. But the assessment was confirmed with slight modification with regard to valuation of the house property. The assessee took the matter in appeal to the Income-tax Appellate Tribunal. Before the Tribunal a further contention was raised that forest land constituted agricultural land and could not be included in the total wealth. This contention was negatived by the Tribunal. Two questions were referred to the High Court for its decision. The first of the questions referred, with which alone we are concerned for the purpose of this case, was whether forest lands, trees, in which are of spontaneous growth, constitute agricultural land within the meaning of Sec. 2(e) (i) of the Act, and liable to exemption.

17. N. D. Krishna Rao, J., delivering the judgment of the Court referred to the observations of the Supreme Court at pp. 508, 509 and 511 in : [1957]32ITR466(SC) answered the question referred in the negative, and in that context made the following observations at pp. 543 and 544:-

'Both the learned Judges had in mind the meanings given to the word 'agriculture' based on the nature of the products raised on the land. This consideration, however, arises no longer in view of the pronouncement of the Supreme Court in : [1957]32ITR466(SC) . The general character of a land, if it is to be considered independently of its connection with agriculture, would give little content to the adjective 'agricultural' in the expression 'agricultural land'. If the capacity for being used for agriculture is a criterion, as observed by Bhagwati, J. in Rasiklal Chimanlal Nagri v. Commissioner of Wealth Tax, (1965) 56 ITR 608 : AIR 1965 Guj 259 even building sites lying idle would be 'agricultural lands' since it would always be possible to say of them that they are capable of being used for agricultural purposes'. We are inclined to agree with the observation of Hegde and Ahmed Ali Khan, JJ. in Sri Krishna Rao L. Balekai v. Third Wealth Tax Officer : [1963]48ITR472(KAR) that the present characteristics and not the potentialities of a land are the proper criterion. If a land is ordinarily used for purposes of agriculture or for purposes subservient to or allied to agriculture, it would be agriculture land. If it is not so used, it would not be agricultural land. The question how a land is ordinarily used would be one of fact depending on the evidence in each case. If, for instance, an agricultural land, as we have interpreted above, is left fallow in a particular year owing to adverse seasonal conditions or to some other special reason, it would not cease to be agricultural land.'

It will be noticed that in the said case the main question was whether forest land in which trees had grown spontaneously would fall within the meaning of 'agricultural land.' In the case of forest land, before the land could be brought under cultivation operations other than the agricultural operations are necessary for altering the physical character of the land to make it fit for cultivation. It is unnecessary for us to express any opinion as to whether forest land would constitute 'agriculture land' or not. But it may be pointed out that the observations made by their Lordships cannot be understood as having laid down that the sole fact that vacant land which is capable of being............used for agriculture, would not fall within the meaning of 'agricultural land'. If their Lordships intended to lay down any such proposition with great respect, we cannot agree with the same. That their Lordships did not mean to lay down such a proposition, is clear from the later observations 'if for instance, an agricultural land, as we have interpreted above is left fallow in a particular year owing to adverse seasonal conditions or to some other special reason, it would not cease to be agricultural land'. The question whether vacant land which is capable of being used for agriculture, is 'agriculture land' or not, did not arise for consideration in the said case. Further the said observations made on the basis of the decision of the Supreme Court in : [1957]32ITR466(SC) , cannot be supported inasmuch as the Supreme Court in that case, did not consider the expression 'agricultural land' and was only considering the expressions 'agriculture' and 'agricultural purpose' and 'agricultural income'. AIR 1944 Mad 401 and AIR 1942 FC 27, were referred to and the expressions of opinions in the said two cases with regard to the meaning of agricultural land appear to have been viewed with approval by his Lordship Bhagwati, J.

18. Sri T. Ananta Babu, next relies upon a decision of the Mysore High Court in : [1963]48ITR472(KAR) . In the said case the main question was whether the land which was requisitioned by the Government for the purpose of locating a military aerodrome and which was being used as an air strip for the last 15 years, could be said to be agricultural land. In the said case there was a clear finding that the land was actually converted into an air field and that in no sense it could be termed as an 'agriculture land'. There, there was change in the physical character of the land itself and it was actually being put to use for non-agricultural purpose. Their Lordships were not concerned with vacant lands which are capable of being put to use for agriculture.

19. Sri T. Ananta Babu, next relies upon a ruling of the Gujarat High Court in (1965) 56 ITR 608 : AIR 1965 Guj 259. J. M. Shelat C. J. and P. N. Bhagwati J., as they then were, were considering whether certain plots of land situate in the city of Ahmedabad, were agricultural lands within the meaning of Sec. 2(e)(i) of the Act. In dealing with the said question their Lordships made the following observations at pages 615 and 616 (of ITR) = (at pages 260 and 261 of AIR):

'Whether a particular land is agricultural land or not must depend on the general nature or character of the land, and various factors would have to be taken into account. The development and use of the lands in the adjoining area and the surroundings and situation of the land would be an important factor which would have a bearing on the question whether the land is agricultural land or not. This factor may affect the land and its capacity of being used for agriculture and would also indicate the purpose for which the land would ordinarily be likely to be used. The physical characteristics of the land would be another factor to be taken into account. The physical characteristics may show the general nature or character of the land particularly in regard to its adaptability for being used for agricultural purpose. Then the intention of the owner as gathered from all the relevant circumstances would also have a bearing on the general nature or character of the land of course, as we pointed out above, the intention of the owner of the land to put it to a particular use at any given point of time cannot be the determining factor. But the intention of the owner in regard to the user of the land would certainly relevant factor which would have to be taken into account. Where, for example, as in the present case, the land has not been used for agricultural purposes for over a number of years without any particular reason, it would be certainly indicate that the land is no longer meant for agricultural purposes but is meant for being used for non-agricultural purposes and cannot, therefore, be regarded as agricultural land. The fact that the land is assessed for agricultural purposes would also be a relevant consideration and due effect would have to be given to this factor in arriving at the conclusion whether the land is agricultural land or not. But, we cannot agree that the capacity of the land for being put to agricultural use is a determinative factor in deciding whether the land is agricultural land or not. If that were the correct test, even building sites assessed for non-agricultural purpose would be agricultural lands so long as they are not actually put to non-agricultural use since it would always be possible to stay of them that they are capable of being used for agricultural purposes. As a matter of fact all land which has not actually been put to non-agricultural use would be liable to be regarded as agricultural land if this test were the correct test'.

The learned Counsel relies particularly on the observation of the Bench. 'But we cannot agree that the capacity of the land for being put to agricultural use is a determinative factor in deciding, whether the land is agricultural land or not.' We may however point out that the ultimate decision in the said case was arrived at on a consideration of several factors, and the decision did not merely rest upon the sole fact that the lands were not put to actual agricultural use. This is clear from the observations at page 619 (of ITR) = (at page 262 of AIR) of the said report.

'It is, therefore, clear that the true test to be applied for the purpose of determining whether a particular land is agricultural land or not, in case where the land is not being actually put to any use, is not whether the land is capable of being used for agricultural purpose but whether having regard to the various factors to which we have referred earlier, the general nature or character of the land is such that it can be regarded as agricultural land'.

The fact that the lands were situated in a wholly residential area with numerous residential buildings around the plots and that they were situated in an area in respect of which a town planning scheme was enforced since about 1945 and that they had ceased to be cultivated are the main factor which were considered by the Bench, as determining the character of the land as non-agricultural land. All that was held in that case was that mere capacity of the land for being put to agricultural use, was not a determinative factor. On the other hand it was held that the location of the plots, the physical characteristics of the land, the intention of the owner and the assessment of the land for agricultural purposes would also be relevant considerations in determining whether a particular land was agricultural land or not. But the learned Judges did not mean to lay down that the capacity of the land for being put to agricultural use cannot be taken put to agricultural use cannot be taken into consideration along with the other relevant factors mentioned above in determining whether a particular land is agricultural land or not.

20. While we do not wish to be understood as in any way accepting the several criteria laid down in this decision for determining whether a land is agricultural land or not, on the facts as found there can be no doubt that the land in question ceased to be agricultural land. As we had indicated earlier the Constitution did not intend to lay down a variable test changing from time to time or year by year either by the actual user to which the land was put for agricultural purposes or on the particular crops grown on it. If such a test was applied and that is left fallow either because the land-holder is economically unable to cultivate it or because of natural calamity or drought conditions occasioned by failure of rains in successive years would cease to be agricultural land.

21. The next case relied upon by the learned Counsel for the Department is Tea Estates India Pvt. Ltd. v. Commr. of Wealth Tax : [1966]59ITR428(Cal) . In this case also, the question that arose for consideration was, whether a part of the tea estate land in which forest grew spontaneously and which was not used for growing tea bushes, was agricultural land within the meaning of Sec. 2(e)(i) of the Act. The Bench while holding that the lands in question were not agricultural lands, made the following observations at pp. 438 and 439 (of ITR) ; (at pages 12, 13 of AIR) which are said to support the contention of the learned Counsel for the revenue:

'It is common knowledge that all tea estates contain a portion of non-agricultural land, i.e., land where actual cultivation or even any processing for tillage is not done. In our opinion in solving such difficulties, we must find out whether the asset which is claimed to be exempted by the assessee as 'agricultural land' is essentially connected with or an integral part of the primary or basic agricultural operations. To say that any asset which is useful or beneficial to the agricultural operation should be treated as agricultural land or to conclude that any land which is capable of being used as an agricultural land would be too wide an extension of the term 'agricultural land' not warranted by the scope and language of the Wealth Tax Act. In all cases where land not under agricultural operation is claimed as agricultural land within the meaning of Sec. 2(e)(i), there should be clear finding that the land in question is vitally connected with the basic agricultural operations.'

It is relevant to note that in this case also, Bench was dealing with land on which forest had grown spontaneously and which was not in its then state capable of being used for agricultural purposes without taking further effective steps to put the land in a cultivable condition. It is this fact that appears to have considerably weighed with the learned Judges in coming to the conclusion that the said land was not 'agricultural land' as it appears from the further observation at page 439 (of ITR) = (AT P. 13 of AIR):

'With respect to the second question in this reference, applying the aforesaid principles, we are of opinion that part of the tea estate land in which the forest grows spontaneously and was not used for growing tea bushes was not 'agricultural land' within the meaning of Sec. 2 (e)(i) of the Act, Admittedly forests in the instant case have grown spontaneously without any expenditure of human labour and skill. There is also a clear finding of the tribunal that no part of it is used for 'agricultural purpose' and that the land in its present state is not capable of being used for agricultural purposes. There is neither any finding that effective steps have been taken by the tea garden authorities to put the land in a cultivable condition as part of their future expansion scheme'.

As the observations would show, the Bench was not dealing with land which was vacant but which was readily capable of being put to agricultural use without the necessity of taking any further steps for conversion of the physical character of the land to put the land in a cultivate condition. Further if the construction placed by the Bench is to be accepted, it amounts to giving a narrow and restricted meaning to the expression 'agricultural land' which, as we have held earlier, is not permissible. As a result of the foregoing discussion, the position may be summarised thus:-

(1) The words 'agricultural land' occurring in Sec. 2 (e)(i) of the Wealth Tax Act should be given the same meaning as the said expression bears in Entry 86 of List I and given the widest meaning;

(2) The said expression not having been defined in the Constitution, it must be given the meaning which it ordinarily bears in the English language and as understood in ordinary parlance;

(3) The actual user of the land for agriculture is one of the indicia for determining the character of the land, as agricultural land.

(4) Land which is left barren but which is capable of being cultivated can also be 'agricultural land', unless the said land is actually put some other non-agricultural purpose, like construction of buildings or an aerodrome, runway etc., thereon, which alters the physical character of the land rendering it unfit for immediate cultivation;

(5) If land is assessed to land revenue as agricultural land under the State revenue law, it is a strong piece of evidence of its character as agricultural land;

(6) Mere enclosure of the land does not by itself render it a non-agricultural land;

(7) The character of land is not determined by the nature of the products raised, so long as the land is used or can be used for raising valuable plants or crops or trees or for any other purpose of husbandry;

22. Applying the aforesaid principles, the next question for determination is what is the character of the land which is the subject-matter of this reference. The land is of a large extent of 108 acres and abuts Hussain Sagar tank and has two wells in the land itself. These indicate that the land possesses all the characteristics of agricultural land and that it is capable of being put to agriculture. It is also not disputed that the land is vacant and has not been actually put to any purpose other than agriculture and that the physical character of the land is not such as to render it unfit for immediate cultivation. The other relevant fact is that the land has been admittedly assessed to land revenue as 'agricultural land' under Section 50 of the Hyderabad Land Revenue Act. These factors in our opinion, strongly indicate that the land in question is agricultural land.

23. Sri Ananta Babu, contends that there are other factors which indicate to the contrary. He submits that the land has not been actually used for agriculture, in the sense that it has never been ploughed or tilled, that the land is situate within the limits of Hyderabad Municipal Corporation, an urban area, that a portion of the land was acquired by the Government in 1955 and utilised for construction of buildings and that the land itself is enclosed by a compound wall. It is not the contention of the learned Counsel that the fact that the land is enclosed by a compound wall render the land unfit for cultivation. It is mentioned in the statement of the case that the buildings situate inside that area, have each compound walls of their own. Therefore this large extent of land 108 acres cannot be treated as a court-yard of a land merely appurtenant to the said buildings. The circumstances relied upon by the learned counsel for the department do not out-weigh the other factors which indicate the character of the land as 'agricultural land'.

24. Sri Ananta Babu, contends that every land is capable of being cultivated, and that if mere capacity for cultivation is to be taken into consideration, no distinction can be drawn between the expressions, 'land' and 'agricultural land'. But as we have mentioned earlier the mere capability it also a strong factor which should also be taken into consideration for determining the true character of the land.

25. For the foregoing reasons, the question referred is therefore answered in the affirmative and in favour of the assessee. The assessee will have his costs. Advocate's fee Rs. 250.